What if we told you there was a way you might be able to get a better deal on your home loan so you could focus on doing your thing? There is, and it’s called refinancing. But what is it? Basically, it’s switching your current loan with another one. Let’s look at some of the main reasons you might think about refinancing so you can decide if the time is right for you.
You could save with a lower interest rate
One of the most popular reasons for switching home loans is to get a lower home loan interest rate (say hello to the possibility of paying less interest and saving money!). Lenders are constantly coming up with new offers to get you on board, and some may reserve their best deals for those shopping around. So, if you’ve had your loan for a few years, chances are there could be a better interest rate out there.
The general rule of thumb is that if you haven’t reviewed your loan in the last 2-3 years it might be worth shopping around to see if you can get a better rate.
Important FYI: If you’re going to refinance to a lower rate, try and make it for the same number of years as you have left on your current loan. If you extend the number of years on your term this could make you pay more in interest over the loan term, even though you have a lower rate.
It’s important to consider things outside of the interest rate, such as any upfront or ongoing fees or other costs that could add to your overall repayments or any initial fees you may be up for, so take a good read of the product terms and conditions, and fee schedules.
You can use your equity to work for you
With the increase in property prices over the past few years, you could be sitting on an equity pot of gold.
What difference does equity make when it comes to refinancing? Well, some lenders may offer better rates to borrowers who have equity, as the equity works as added security. And if you do have a chunk of equity in your home, it might give you the opportunity to add to the size of your loan when you refinance (if you can afford the extra repayments).
Your fixed rate loan is coming to an end
It’s fairly common to have a period of time with a fixed rate on a home loan. Sometimes it can be part of a split loan structure (that is, a loan where a portion has a fixed rate and the other portion has a variable rate).
The way fixed rate loans generally work is that when your fixed rate period ends, your loan will change to a variable interest rate. This may be a good time to stop, take a breath, look around and compare rates – either with your current lender or another. Go with whatever deal is best for you. Switching to a variable rate loan or getting a new fixed rate is up to you, but it literally could pay to shop around, rather than just let the loan roll over and leaving it be.
You can also choose to end your fixed rate loan early, but this usually comes with an expensive break cost fee. Speak to your current lender about these fees if you decide to refinance before the end of the fixed period.
Your life has changed a little (or a lot)
Life happens. And when it does, refinancing could help you roll with the changes. Maybe you’re having a baby or shooting for a career change with a great business idea. Whatever your new direction, you could be looking to reduce your repayments – and you may be able to do that with a lower rate over a longer term, for example.
Keep in mind that the lender will take into consideration your current income and job status. So if you are a one-income couple for a while, or you’ve gone from full-time to self-employed or contract work, it may not be the right time to refinance. On the flip side, a pay rise or a new job with a step-up in salary puts you in a good situation to ask for more from your lender, so it’s a smart move to ensure you’re getting the best rate.
You’re not totally satisfied with your current lender or home loan
If your lender has fallen short of expectations or you’re not totally happy with your loan, it may be time to move on or ask for a better deal. As you go through your home loan journey and have more cash and assets behind you, things like offset accounts (a transaction account tied to your home loan that could allow you to reduce the interest you pay) and redraw (when you can access extra repayments you’ve made on your loan above the minimum repayment amount) might start to have a strong appeal. While these might not be reasons to refinance alone, combine them with a lower rate loan and the changes could mean you pay less interest over time or own your home sooner.
Need a hand making the call to refinance?
Before you make a change, talk to an ING home loan specialist. They can explain the process and discuss all your options and choices. There are no obligations – our experts are here to help. We offer competitive rates and have three simple home loan products to choose from.
To talk to an ING home loan specialist call 1800 100 258, 8am – 8pm AEST on Monday to Friday or 9am – 5pm AEST on Saturday.
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